The forecasting abilities of implied and econometric variance-covariance models across financial measures [An article from: Journal of Economics and Business]

This digital document is a journal article from Journal of Economics and Business, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This study evaluates the forecasting ability of implied and econometric forecasting models under statistical and financial evaluation measures. The econometric models outperform the implied model on all criteria. Overall, the exponentially weighted moving average model is the best forecasting model since it produces hedged portfolios with the lowest variance. It also has the ability to time market fluctuations while maintaining minimal capital allocation, and thus enhances profitability when employed as a tool for trading strategies. Our empirical results suggest that firms should explore the use of dynamic statistical forecasting models rather than relying on the implied model.